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Free Cash Flow and Shareholder Yield: New Priorities for the Global Investor Hardcover – January 2, 2007
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From the Inside Flap
The current investment landscape is among the most dynamic and complex in the history of the capital markets. Today's investor must contend with dramatic alterations to the traditional methods of stock selection and portfolio construction as the order of the drivers of total equity returns are realigned and the irreversible effects of globalization take hold. Added to these powerful forces is the presence of a flat-to-rising interest rate scenario that could ultimately disrupt the equilibrium of the international marketplace.
How can you, the informed investor, incorporate these new realities into an investment strategy that both protects and grows capital?
Free Cash Flow and Shareholder Yield provides the key to making profitable investment decisions in a world that is characterized by unprecedented change. Researched and written by veteran investment industry professionals William Priest and Lindsay McClelland, this book shows how traditional investment metrics, such as the P/E ratio, are being eclipsed by a free cash flow-based approach to investing. To provide a functional framework for the application of the free cash flow philosophy, Priest and McClelland introduce the concept of Shareholder Yield: an innovative method of gauging investment opportunities by the magnitude of free cash flow that is generated by a company and the manner in which this free cash flow is deployed. Free Cash Flow and Shareholder Yield reveals how the robust, commonsense discipline of Shareholder Yield can reduce risk and enhance returns, even in the face of today's shifting investment paradigms.
This book not only equips the reader with the Shareholder Yield toolkit, but also shows how this strategy fits into a larger understanding of the global macroeconomy. By exploring the topic of globalization in an investment-specific context, the authors show how the free cash flow philosophy can be directly applied to the increasingly borderless international marketplace. Similarly, this book examines how the future likelihood of flat-to-rising interest rates may result in the bursting of several economic bubbles, each of which may meaningfully affect the manner in which successful investments are made.
The key to surviving these coming challenges and the secret to profiting from the forces of globalization reside in Priest and McClelland's free cash flow strategy as exemplified by Shareholder Yield. By presenting a comprehensive, unflinching perspective on today's changing investment landscape, Free Cash Flow and Shareholder Yield provides a must-read primer on the new priorities for the global investor.
From the Back Cover
Praise for Free Cash Flow and Shareholder Yield
"Free Cash Flow and Shareholder Yield provides a provocative solution to the profound paradigm shift now redefining valuation standards for markets around the globe. In commonsense terms, it defines how the investment community has begun the journey of shifting to the more dependable, robust metric of free cash flow."
—Rob Brown, Chief Investment Officer, Genworth Financial Asset Management, Inc.
This graph tells a singularly compelling story of the changing order of the drivers of total equity returns. In Free Cash Flow and Shareholder Yield, you will learn how this story is the key to informed investing in an evolving global marketplace.
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Top customer reviews
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The discussion of economics if provided as reasoning as to why shareholder yield will be increasingly important in the current economic environment. As with all texts of this nature, the economic analysis is dated, but this does not detract from the central message of the book.
If you are interested in the concept of shareholder yield, this is currently the most comprehensive treatment in book form, and I would thoroughly recommend it.
If you are looking for a book that will teach you basic free cash flow analysis or will provide you with an economic roadmap for the future, look elsewhere, as this is not the intention of the book.
At its core, the book has a valid and useful theme; free cash flow is the prime measure for judging a corporation's financial performance - not it price/earnings ratio. Priest stresses the point that the p/e ratio is a function of the accountants' (and management's) obscure and GAAP-driven analysis whereas free cash flow actually provides an investor an opportunity to intelligently assess the potential of a given enterprise for investment. Thus, inherent conflict can exist between the numbers that go into the "earnings" as manipulated by management and the numbers that are relevant to investors.
Priest goes on outline the three useful functions - to the investor - of free cash flow; cash dividends, share buybacks and debt reduction. I would argue mildly that share buybacks have a pretty checkered history with a large number of such buybacks taking place at exactly the wrong time. Still, these first several chapters are useful in reminding an investor what to keep his/her focus on and why.
The following section, on globalization, could be or could have been, 10 years ago, an interesting magazine article or op-ed piece in the WSJ. In this book it is dated before publication and spins off into Priest's theory that we now live in the "dollar zone" which starts to sound a lot like we should all hold hands and sing - you know what. Worse in the same section, as throughout later parts of the book, Priest loudly warns of soon-to-be-present rising interest rates. Right. I'll hustle right out and buy a 7% CD. The consequence is that Priest undermines the efficacy of the other parts of the book.
To his credit, Priest correctly warns of the housing bubble as well as a liquidity bubble but seems to confuse the consequences and outcomes thereof. I do confess, however, that after grinding through the blather on globalization I started reading very quickly and indifferently - there seemed to be little new or of particular value.
I'm left somewhat disappointed, therefore, that what could have been a useful text on free cash flow spins down into some aimless cocktail party chatter that doesn't last as long as the resulting hangover.
I was hoping for a book on investment from a private investor or business owner point of view and this book was mainly about the investor in shares in public companies.
Having said the above I found the book a very informative read and believe that the purchase of this book adds a valuable information source to my library.